Who’s Really Pulling the Purse Strings? (Part 3 of 3)

Click here to read Part One, Part Two

In part one we discussed how there is a world movement to devalue the American currency, which is one front in the war on terrorism, and part of America’s struggle with globalism. In part two, we examined has China has been extending it’s financial sphere of influence worldwide. Now, we will explain China’s long term strategy, and what the strategy of the United States needs to be in order to protect the American economy.

It is important to understand how the money market works and that China has learned to control it. Financial policies within China are controlled by the People’s Bank of China:

The People’s Bank of China is to establish a monetary policy committee, whose responsibilities, composition and working procedures shall be prescribed by the State Council and shall be filed to the Standing Committee of the National People’s Congress. The Monetary Policy Committee shall play an important role in macroeconomic management and in the making and adjustment of monetary policy.

(For more information about how the Chinese economy works, see SCID Working Paper No. 245 and IMF Working Paper No. 07/14)

Frank Shostak, of the Mises Institute explains:

What allows China’s central bank to sell US dollars at a subsidised rate is the massive stock of foreign reserves, which stood at US$875 billion in March this year versus US$169 billion in January 2001.

By directing its demand to dollar-priced commodities China has significantly contributed to their overvaluation versus other goods and services priced in US dollars. (Whilst China cannot print dollars and therefore lift prices of all the goods and services priced in US dollars, it can push prices of some goods relative to other goods).

If China were to appreciate its currency, as most experts advise, this, given loose money policy, will only reinforce demand for commodities from China. The recent hike in China’s interest rate is not the prelude for more interest rate increases.

According to Thomas P. Au, CFA, in his article, Why a Chinese Monetary Tightening Could be Followed by a Global Depression:

As the world’s largest holder of dollars, the People’s Bank of China is now the world’s de facto central bank. That’s a scary thought because China is a nouveau riche nation that is not ready for a principal role in global economy. But in 1929, the United States was similarly a parvenu, a country that held 50% of the world’s monetary reserves (in the form of gold) even though its central bank, the Federal Reserve Bank of the United States (or Fed for short), was all of sixteen years old; this adolescent outfit had been created only in 1913 after the passage of the 16th Amendment to the Constitution.

Moreover, China is facing the essentially same dilemma today as America did in 1929….Like a lot of other goods that Americans now import, the modern 1929 (or a somewhat better outcome), will have been ‘Made in China’.

Goods are not all that Americans are importing from China. Since the immigrations laws changed in the mid ’60’s, Chinese immigration has increased 10-fold. (Poston, 2006, p. 2)

China is a heavily regulated country. They lock up people for disagreeing with them. They send people who complain to “re-education camps”. Logically, why are they letting people emmigrate? Chinese immigrants now exert influence in more than 150 countries (Chinese Migration)

“The essential fact that migration is not just about numbers, but about control over wealth and ideas.”(Skeldon, Journal of International Affairs, Winter96, Vol. 49 Issue 2, p434, 22p)

While the United States’ attitude toward many other nations, including China in terms of immigration and trade has been quite accomodating, and laise fair, the Chinese strategy for financial world domination has been long-term and calculated. Country Studies’ China page on The Influence of Ideology explains:

According to Chinese leaders, China has pursued a long-term strategy is “definitely not swayed by expediency or anybody’s instigation or provocation.” In keeping with the view of Chinese foreign policy as constant and unvarying, Chinese pronouncements often describe their policy with words such as “always” and “never.”

So what does the United States need to do? Joshua Kurlantzick, of Foreign Policy in Focus, recently wrote, in Responding to China’s Charm Offensive:

The United States needs to comprehend exactly how China exerts influence. In part, this can be accomplished through efforts like Congress’s U.S.-China Engagement Act, which would create more American missions in China. But Washington also should take a page from its Cold War policy. During the Cold War, Washington had at least one person in each embassy who studied what the Soviets were doing on the ground in that country; today the United States should have one person in each embassy examining that nation’s bilateral relations with China — China’s aid policies, Chinese investment, China’s public diplomacy, Chinese leaders’ visits.

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With a better understanding of China’s soft power, Washington can more systematically set clear limits – for itself, for China, and for other nations – and establish where it believes China’s soft power possibly threatens American interests.

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To protect these interests, the United States must focus on rebuilding its soft power. Otherwise, it will face even more situations where citizens of democratic nations put pressure on their leaders not to cooperate with the United States. Indeed, unlike during the Cold War, as the world has become more democratic, America’s core interest – its national security – increasingly relies on wooing foreign publics.

As national elections are rapidly approaching, this is an issue of foreign policy which American voters need to address with their elected representatives. Do we really want another country controlling the U.S. economy?